The Openpay Group Ltd (ASX: OPY) share price is tumbling lower today, down over 8% at the time of writing to $1.06. The buy-now-pay-later (BNPL) company released its half-year results this morning, showing growth in key metrics but reported a loss for the first half.
This comes as the S&P/ASX 200 Index (INDEXASX: XJO) is down by 2.80% after global markets were hit overnight on concerns surrounding the coronavirus.
Openpay's 1H20 results
Openpay reported record growth and strong momentum in its BNPL business for the half. Total transaction value (TTV) for the half grew to $84.4 million, up 95% on the prior corresponding period (pcp). This was led by several high volume, multi-store merchants. Bunnings increased its TTV by 150% during December 2019 compared to December 2018.
Revenue grew 73% to $8.3 million, reflecting continued growth in customers, plan volumes, and propensity of use. Merchant fees accounted for 49% of revenue (54% in 1H19) while customer fees accounted for 51% of revenue.
Net transaction margin was 4% of TTV, up 23 basis points on 2H19, driven by strong gross revenue yields and controlled funding and transaction costs. Net transaction losses were 1.7% of TTV, up 4 basis points from 2H19. Openpay continues to optimise its credit decision capabilities through proprietary Automated Risk Management and augmented machine learning fraud management systems.
Openpay reported a statutory loss before tax of $15.9 million for the half, compared to a loss of $4.6 million in 1H19. The 1H20 loss includes one-off items related to the company's initial public offering (IPO) in December and also reflects significant investments in people, technology, and growth initiatives designed to scale the business. It also includes an investment of approximately $4.5 million during the half to support the UK expansion.
Openpay CEO Michael Eidel said, "Openpay is delighted to announce its first half yearly result as a listed company. We have achieved record growth across all BNPL metrics and through our international expansion, created significant momentum in the UK. We also built our new B2B offering, Openpay for Business, and announced Woolworths as our inaugural client."
Balance sheet
Openpay reports that it is well-positioned to fund continued growth with cash on hand of $52.6 million plus $51 million of undrawn facilities in Australia. Openpay is in advanced discussions with a number of financiers for additional facilities to support UK growth.
The company has Australian debt facilities in place of up to $75 million. This is made up of Australian receivables facilities with two providers of $65 million ($41 million undrawn as at 31 December) and a $10 million working capital facility ($10 million undrawn). As at 31 December, the loan to value ratio of the Australian receivables book was 66%, providing significant headroom with a target of 80% and a limit of 85%.
Plan, customer, and merchant numbers
Active plans grew 187% compared to the pcp, while customer numbers grew 99% and merchant numbers were up 74%. As at 1H20, there were more than 462,000 active plans in place. This result was supported by the introduction of major retailers, expansion into the UK, and the increase in repeat usage and concurrent plans.
Openpay finished the half with 206,434 customers, up from 103,700 in 1H19, with growth strong across all merchant verticals and particularly in healthcare. There were 1,894 active merchants at the end of the half. New merchants added during the half included Vision Australia, Bupa Hearing, Hanes Australia, The Just Group, and Petstock.
Online shopper awareness of Openpay increased to 80% from just 5% in 2018. Merchant awareness of Openpay increased to 60%. Increased repeat usage of Openpay's offering was reported with 71% of new plans generated from repeat customers and 42% of active customers having more than one plan.
UK expansion
The UK is a significant area of investment for Openpay and also a contributor to the company's strong top-line result. The UK represents a significant opportunity as it is a larger market relative to Australia with limited, if any, competitive BNPL offerings in automotive, home improvement, and healthcare.
Launching in the UK in June 2019, Openpay has made a solid start in the market partnering with several high impact merchants. UK merchants signed in the first half included Instasmile, House, Hand on Heart Jewellery, Makers Retail and Masdings. JD Sports, a £2.1 billion UK retailer, is expected to go live during Q3 FY20.
During the half year, active plans grew from 2,950 to more than 43,000 and active customers increased from 2,750 to more than 33,000. Positive trends of repeat use are reported.
Openpay for Business
Openpay for Business adds to the company's diversification by opening up a large new enterprise market. It is capital-light with long term contracts and high margins. It is globally applicable through its ability to enable the end-to-end digitisation of enterprise merchant relationships with debtors and wholesalers. Under the Software-as-a-Service (SaaS) business model, the product will deliver recurring revenues to Openpay based on usage which scales with the customer's operations.
Openpay's entry into the business to business (B2B) sector via the inaugural agreement with Woolworths Group Ltd (ASX: WOW) represented a major milestone for the company. Under the agreement, which has an initial term of 3 years, Woolworths will roll out Openpay's new SaaS platform, Openpay for Business. Implementation of the platform will ramp up in 2H20, with revenues expected to be generated in 1H FY21.
Outlook
Openpay reports strong momentum continuing into 2H20, with demonstrated growth across all key metrics as at the end of January. Active plans reached 513,000 at the end of the month, while active customers reached 224,000 and active merchants totalled 1,902. TTV for January rose to $15.7 million with revenue of $1.9 million, up 86% and 58% respectively on prior corresponding periods.
Openpay is looking to deliver on three key value drivers to expand growth in FY20 and beyond. Domestically, it is seeking to drive new merchant acquisitions and repeat customer growth.
In the UK, the company is looking to leverage early momentum to continue driving merchant acquisitions. Securing a UK facility to fund receivables growth and Financial Conduct Authority (FCA) authorisation (expected FY21) to provide the opportunity for product diversity are also key goals.
Openpay is also looking to extend the Openpay for Business platform and expand BNPL products into new verticals.
